Dead Men Left

Monday, April 10, 2006

Absolute surplus value, China, and the North

Ah, splendid:

Valéry Giscard d'Estaing, former president, on Sunday underlined the seriousness of the situation when he said the country's institutions were in a state of disarray not seen since the late 1950s when, amid the Algerian political crisis, the constitution was rewritten to create the Fifth Republic.

"The normal functioning of institutions must be re-established," said Mr Giscard d'Estaing, in an article written for Le Journal du Dimanche. The government, he added, should as soon as possible put forward a new law withdrawing the new job contract. "It is time to get out of this mess."

"The normal functioning of the institutions must be re-established...": which put me in mind of Ed's commentary on Andrew Glyn in the Guardian a few days ago.

Glyn writes:

A piece of conventional wisdom about the world dear to economists is that the share of national income going to workers stays pretty stable. Karl Marx disagreed; he argued that labour-saving capital investment would limit demand for labour, while also bankrupting small-scale producers, in agriculture for example. They would swell the labour supply, creating a permanent "reserve army of labour" that would prevent real wages growing as fast as labour productivity. Workers would thus spend an increasing proportion of working time producing profits for capitalists - a falling share for labour or a rising rate of exploitation, in Marx's terminology.

All well and good, as far as it goes. Ed briefly discusses Glyn's account of the crisis of the 1970s at his blog: in brief, Glyn views the the slide in profit rates commencing from the late 1960s onwards as driven by the strength of organised labour. Capital, in the guise of neoliberalism, was then able to reassert itself, boosting profit rates and restricting labour's share of the national income. The obvious problem with this account is one of timing: the most sustained increases in real wages in the post-WW2 period occur at precisely the same time as the most sustained increases in national income and productivity. It's then difficult, as Ed rightly says, to see why the crisis would then only occur in the 1970s, and not the 1950s. (Glyn's problems are caused by an elision he makes, on the basis of a neo-Ricardian interpretation of Marx, between economic variables in price terms, and economic variables in labour-value terms... but that's by-the-by.)

There are broadly similar difficulties in Glyn's account of China's spectacular economic growth in recent decades. First, the recovery in the rate of profit since the early 1980s was brought about in the developed North by a brutally effective attempt to maximise what Marx called "absolute surplus value". There are two ways to boost profits: you either make your workforce work more effectively, or you make them work harder and longer. "Relative surplus value" is increased with the former; "absolute surplus value" with the latter. If the working day can be extended - and it has been, reversing 100 years of progress - and if real wage growth can be minimised or even reversed - real wages in the US stayed constant between 1975 and 1995 - "absolute surplus value" can be increased: capital can grab a greater share of output. It's crude, but it has been singularly effective for capital, at huge human cost.

Second, the maintenance of the neoliberal order - such as it is - has depended on the intervention of a massively expanded financial system. The problem with restraining real wages is that this also restrains purchasing power; if you don't pay your workers as much, they cannot buy as much; if they cannot buy as much, capital cannot sell as much.

John Maynard Keynes proposed expanding government expenditure to make good the gap between what consumers can afford, and what is offered for sale; after a burst of post-war enthusiasm for the concept of government-led "demand-management", the political risks were, by the 1970s, considered too great. Instead, the extraordinary growth of private, consumer credit was allowed to make good the difference. The second phase of the neoliberal age - the period over which China rose to global economic prominence - has leaned ever more heavily on the crutch of global finance. Consumers, especially those in the US, borrow to buy cheap manufactured goods from the Far East. The system functions, as long as the credit can continue flowing.

Glyn's brief account passes over this critical dependence. A recovery in the rate of profit was only possible globally because of an initial rise in absolute surplus value across the developed world - quite independently of China's later liberalisation. This recovery was then only sustained because a liberalised financial system could ensure markets for goods were maintained on cheap credit. In Glyn's apocalyptic scenario, the appearance of a Far Eastern "reserve army of labour", millions-strong, puts such pressure on workers in the North that "[t]he bargaining chips would be in the hands of capital to a degree not seen since the industrial revolution."

But who, then, would buy the goods this Chinese proletariat produce? If real purchasing power in the North collapses as a result of competition from the South, it would seem neoliberal capitalism has very few options: the only one that presents itself as politically acceptable is a frenetic expansion of an already-bloated consumer debt. This is not a secure position from which to cast "bargaining chips". Other, as yet politically unacceptable solutions may start to present themselves.